Abigail Montrose hears how the protection industry is viewing the FCA’s review of the market and how greater transparency is seen as a good thing.
The Financial Conduct Authority’s (FCA) ongoing market study is a hot topic for the protection industry. The far-reaching review, which is looking at a range of factors including commission, fair value and competition among providers, will potentially last a year longer than expected and stretch into the second half of 2027.
The regulator has been busy gathering data from the industry and hopes to publish its delayed interim report along with consumer research it has conducted in early 2026.
With such a powerful microscope over the industry, Health & Protection’s Individual Protection Report roundtable at the House of Lords heard a passionate discussion about where the regulator should or should not be acting and what the key results would be.
It also heard some stark financial sums being quoted in market practices which might raise eyebrows at the regulator.
Positive position
The panel noted that since the process started, the FCA has widened the scope of its review.
LifeSearch CEO Debbie Kennedy was unsurprised by this, as early meetings with the FCA suggested the regulator was still establishing the boundaries of the review and looking to understand the value chain in more depth.
“This is really positive,” she said.
“The FCA was really open to saying ‘we’re going to have to learn more’. I feel they’ve spent an awful lot of time listening and trying to understand, but I’m still not quite sure what problem they think they’re trying to solve.
“I don’t think customers are saying this is a terrible industry; I wondered if the review was the result of lobbying by insurers.
“When I was in Australia the same thing happened there – insurers lobbied the regulator and it had to respond. They eventually reduced upfront commissions but this did not result in more sales, and it definitely did not result in insurers becoming more profitable,” she added.
Vicky Churcher, executive director of the Income Protection Task Force, thought the decision to review the protection market was just a follow-on from the FCA’s review of the general insurance (GI) market.
“My understanding of where this came from is what happened several years ago in the GI space, where there was a lot of issues,” she said.
“They did cap commission and then some of the GI players said, well, what are they doing in protection?”
However, Churcher argued she did not believe much would come from the review, although she accepted loaded commission was likely to be a target.
“I think they’re going to say, ‘we thought there was lots to see, we were told there was a lot to see, we’ve had a really good look and there’s not a lot here’,” she continued.
“They might cap or scrap loaded commission rates, they might do a few other things, but it’s going to be mostly around the edges.”
Commission and loaded premiums
This tackling of commission, particularly loaded commission, by the regulator is a complicated matter and was another area where the panel felt content with the current general direction of travel.
“If there are no problems with commission, which I suspect is going to be the case, then that’s a good thing,” said Roy McLoughlin, board member of the Protection Distributors Group (PDG).
“There might be an argument for a cap, because some commissions are getting a bit crazy. I’d be happy for a Retail Distribution Review (RDR) light on protection which comes full circle to annual statements, because we should be encouraged to keep in touch with our customers better than we do,” he said.
The PDG would also be happy for the FCA to review loaded premiums, said McLoughlin.
“The PDG stance on loaded premiums is very simple,” he continued.
“We’re not against them per se, but we are against them if you don’t tell people that you are charging them more and why.
“As an industry we need to be a bit more honest about if we’re going to charge A rather than B and I suspect if the FCA suggested that, rather than just getting rid of them, that would be a positive thing,” he added.
Caution when mandating conversations
Mandating conversations or adviser activities with customers is sometimes seen as a positive for the sector, but this could be overly prescriptive or unnecessary in some regards.
As Association of Mortgage Intermediaries (AMI) CEO Stephanie Charman noted, the FCA often talks about mandating, but she suggested this needed to be applied carefully as it is not possible to mandate a sale.
Furthermore, she highlighted that some distributors have had good success with being more rigorous in ensuring conversations happened.
“We’ve seen penetration and conversion rates really increase when you are having that mortgage protection conversation, it’s about having that conversation at the right time,” she said.
“You can’t say one size fits all, one business model fits all, but the sector is already starting to try and improve and have those conversations at the right time and in the right places. I do think there should be some disclaimers.
“AMI’s view is, the mortgage illustration talks about general insurance such as home insurance, but it doesn’t mention anything about protection and there should be something in there on protection for consumers,” she added.
Transparency
Another area highlighted in response to the FCA’s review was transparency.
In submissions to the Health & Protection Individual & Business Protection Report, insurers asked for more transparency on marketing budgets for networks as well as their other costs and expenses.
This was also flagged by attendees.
Churcher thought greater transparency around the costs involved for being included on an adviser network’s provider panel would be a good thing, especially as some can potentially reach eye-opening levels.
“I think what the FCA is getting at used to be called brown envelopes,” she said.
“This was where networks would say ‘if you want to be on our panel, you have to give us say £20,000 a year and we’ll do some roundtables and such with you’ – and that was very low. One particular network wanted as much as £250,000 a year.
“They’re not considering this as part of the commercials, but it is part of the commercials and has to be included for compliance justification.
“What are they doing with that money? Why do they need that money? That’s not being said,” she added.
Charman thought that if insurers wanted to know this, they could get the information from the networks.
“Insurers can go and have conversations with the networks and service providers and the majority will be really transparent about this and their marketing packages,” she said.
“They need to as part of their own fair value assessments and their regulatory requirements. There may have been issues in the past, but I think most of the market has moved on considerably and a lot of that transparency is there.
“So do we need the regulator to put that into the rules or as a sector can we just have some conversations about where there are still some of those concerns?” she said.
The panel felt that advisers were already being transparent as they send out statements and illustrations which include details of how much commission they are getting.
In response to the insurers, LifeSearch’s Kennedy thought more transparency from them would be a good thing.
“I would really like to understand what the insurers’ premiums go on, how much the margin is, how much they favour healthy lives at the risk of not looking at people that have got disclosures and what their underwriting profit on these cases is,” she said.
“And please be open with us on claims because we always say, please tell us when we’ve had a claim, it’s a real issue getting that information back.”
Consumer Duty already addressed some issues
Overall, the panel noted the Consumer Duty has already looked at many of the areas the current market review is examining, so this is a well-trodden path.
“We’ve had Consumer Duty which is embedding into businesses where you’ve already got product governance rules,” said AMI’s Charman.
“You’ve also had people looking at fair value and all parts of the chain needing to ensure they’ve got their fair value assessments done.
“So the sector started to do some of that work at the same time as this market study started and this needs to be reflected and looked at as part of the review as there are areas that we’ve already improved,” she concluded.